Chit fund has been traditionally a popular form of investing for low budget investors. It also further the cause of financial inclusion for citizens who have been deprived or haven’t been able to participate in the financial mainstream. The flip side to this financial instrument has been the fraud perpetration in this sector and continuous loss of hard earned money of the poor and vulnerable. Various news reports claim that between 1.2 to 1.4 lacs crores of public money is lost to various chit fund schemes involved in over 350 scams, impacting 15 crore families, in 17 states. All these were identified as low budget investors.
Telangana is one of the largest hubs of chit fund investment in the country. In the state alone, 18,549.12 crores of savings of over 10,08,300 subscribers is rotated. Most of the investors are from low income groups. According to estimates, every month, one office processes data of over 2 lakh subscribers worth about 200 crores. The massive scale of the transaction volume and the scope of the ecosystem involved, with multiple unknown parties like chit fund organizers, subscribers, regulators, banks, auditors and third party systems makes chit fund administration, trust and transparency, an unfathomable challenge.
The regulators have to trust the data given by the chit fund companies as it is manually challenging to verify the humongous data every office has to handle on a monthly basis. If a fraud is to be found, the regulators have to create a trail of the fraud. This is hugely clerical, inefficient and time consuming.
The Government of Telangana has adopted the Blockchain technology, which creates a network of multiple stakeholders being able to equally authorise and monitor the transactions. This creates an audit trail in the system thereby minimising the possibility of frauds.
Chit Fund management involves different parties like Chit fund companies, subscribers, Government, banks, auditors, support systems all of whom are very important to make sure the system operates both to protect the interest of subscribers and make chit fund companies more credible. “Any system which shares information (single source of truth) across different parties (distributed ledger) with immutable data, makes a good case for a blockchain. Blockchain is a good answer for chit funds management, especially more so for state governments too. Implementation of such an emerging technology without impacting the existing operating model is easy and proven in Telangana already. The entire chit fund administration can be automated using our product,” says Pavan Adipuram, Co-founder and CEO, ChitMonks. The phase one of the implementation was over in June 2019.
What is lacking in the current setup of managing chit funds? And how does Blockchain help ?
The current system of managing/monitoring the chit fund business is mostly manual, time-consuming and most importantly, information is not available to all the parties involved. Rules defined in the chit fund act are converted into an operating manual in the current system. This operating process was defined about 4 decades ago, where technology and process to verify has been completely manual. “An IT system that can probably bridge the gap of putting the information into a simple database was also tried out. But a rule-based workflow engine, which does automatic verification of all the complex business rules defined in the chit fund act is required. This implementation has not just solved that problem but is also quite forward-thinking of taking the trust to a different level by making the involved parties signatories to all the transactions in the ledger,” says Rama Devi Lanka, Director – Emerging Technologies, Officer on Special Duty (OSD), Dept of ITE&C, Telangana.
In phase one implementation of Blockchain, Telangana has brought the entire system of operations into the new workflow-based and automatic rule validation of the Act. “With this implementation, we now have the capability to monitor any violations made by the companies. Operations management has become super efficient too,” points Rama Devi Lanka. The T-Chits blockchain platform now processes 1600+ chit fund companies, 1.3MM+ subscribers, 28,550+ chit groups, 1,30,000K+ blocks and 700K+ transactions.
As the state rolls out phase two of the implementation, more partners will be added to the Chain. It will enable subscribers to directly sign the transactions digitally, banks verifying the payments and other related activities and slowly automating the intermediation done by the regulator offices on many aspects.
The govt. played an important role in mobilizing all chit fund companies to undergo training, adapt the solution and also promoted T-chits through marketing activities. “We conducted training programs with about 1500+ Chit fund companies simultaneously. If not for the Government coming forward and having faith in our capabilities, it would have been very difficult to both implement and scale it across the state,” concludes Adipuram.
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